As head of the "geo risks" division at Munich Re, the world's largest insurer of insurance companies, Peter Hoeppe sizes up the threat of tropical cyclones, floods and tsunamis like a Las Vegas oddsmaker tries to pick the winner of the Super Bowl.
And increasingly, Hoeppe's biggest worry is not when the fabled big one will shake California, or the next Hurricane Andrew will steamroll Florida. It's global warming, which he believes is already costing the $3-trillion insurance industry.
Worldwide disaster losses have been rising for the last half a century, even when inflation is factored in -- and Munich Re asserts that climate change is at least partly to blame.
Insured disaster losses in 2004 totaled $44 billion, the most expensive year ever for the industry, according to the German reinsurance company. Overall disaster losses were $114.5 billion, the second-highest total ever.
By contrast, disaster losses, adjusted to 2004 values, were about $40 billion in 1980 and $10.5 billion in 1951.
"Single events can never prove climate change. But like a stone in a mosaic, if you get enough of them, you begin to see a full picture," said Hoeppe, who leads a team of 25 meteorologists, hydrologists, geologists and economists that studies the global cost of calamity. "We have seen dramatic increases in damage from weather events. Something is changing in the atmosphere. There is no other explanation."
Skeptics, including some climate scientists who believe in global warming, wonder whether some insurers are talking up the threat of climate change to raise rates. And most American insurers are more concerned about terrorism than the weather.
Nevertheless, although most insurers do not believe that climate change is currently eroding their bottom line, many are growing concerned that it could in years to come if computer predictions prove correct and extreme weather becomes more common in a warmer world heated by greenhouse gases.
Last week, for example, the Assn. of British Insurers, a trade group representing about 400 companies, predicted that the worldwide cost of major storms could rise by as much as two-thirds by 2080 because of global warming, raising average annual losses to $27 billion in current dollars.
As a result, insurance companies are watching the evolving science of climate change more closely, because it could mean that their techniques for judging disaster risks based on historical trends will no longer be reliable. The concern is especially strong in the reinsurance sector, which is liable for the insurance industry's biggest risks.
Already, some insurers contend that past no longer serves as prologue when it comes to predicting disasters.
As an example of the uncertainty they face, several insurance officials noted that a tropical storm hit Brazil's southern coast last year, causing widespread damage; it was said to be the first hurricane ever recorded in the Atlantic Ocean south of the equator, which previously lacked the combustible mix of atmospheric conditions needed to create such potent storms.
"You cannot use the past to foretell the future. It is simply not working anymore," said Gerry Lemcke, a climatologist with Swiss Re, the world's second-biggest reinsurance company. "It's very difficult to assign a number to climate change in an insurance sense. But if we want to be around after the big event -- if we want our clients to be around -- then we have to discuss these considerations."
Such a discussion would have to include an alternative explanation for the rise in global insurance losses in the last 50 years, said Roger Pielke Jr., director of the University of Colorado's Center for Science and Technology Policy Research: More people are living in harm's way.
On his blog, as well as in a series of scientific papers and an article he coauthored in the New Republic, Pielke has contended that reinsurers' claims about global warming have been accepted without scrutiny by the United Nations, environmentalists and others who would never, by comparison, take the word of the fossil fuels industry.
"It seems like pointing out the obvious that the reinsurance industry has a powerful vested interest in charging the highest rates that the market will bear for its products. And the prospect of more disasters means a basis for charging higher rates," Pielke wrote on his blog, Prometheus.
Pielke said in an interview that although rising temperatures might indeed be having an effect on insurance losses, population shifts and the accumulation of wealth "are so great that any climate change signature is dwarfed by the other factors."
Hoeppe of Munich Re disagrees, contending that although those trends surely account for much of the increase, they cannot explain it all.
